It’s Time to Shop for Dick’s Sports Equipment Again

Dick’s Sports Equipment Is Below

After correcting more than 30% over the last few quarters it seems Dick’s Sports Equipment (NYSE: DKS) is at the bottom. The sell-off had more to do with expectations and system-wide hurdles than actual results and was helped by high near-term interest. At 22%, Dick’s Sports Goods short interest isn’t the highest we’ve seen but it’s substantially high and fuels enough for a short squeeze. Add to that the fact that Q4 results were much better than expected and that aggressive dividend hikes are still in effect, we see this stock moving higher over the next quarter and then possibly setting new year-end highs.

The institutional activity at Dick’s Sporting Goods is noteworthy because it poses risks to investors. Institutions own more than 92% of the shares and they have been heavy sellers for the last two quarters. The net of institutional activity over the last two quarters is worth more than 6.2% of market cap with the stock trading near $105 and a very big reason why prices are at their current lows. If this activity continues, the stock could easily move lower or remain range-bound despite strong business. However, if the Q4 results change the institutional perspective on stocks, the bottom is sure to come in. Trading at just 6.4X its earnings and paying the S&P 500 a beating 1.6% in yield, we don’t see why the institution would continue to sell, we think the stock is attractively priced and pays a very safe dividend.

Sports Dick Beats And Rises, Stocks Move Higher

Dick’s Sporting Goods had another record year in 2021 and ended it with a strong quarter. The company reported $3.35 billion in net revenue for the 4th quarter which was a good 7% gain on top of last year’s 28.5% gain and beating consensus by 120 basis points. Profits were driven by a 14% increase in store traffic offset by an 11% decline in eCommerce. eCommerce, in particular, is up 57% in a two-year stack and penetration is up 200 basis points.

Moving downwards, pricing and reduced promotional activity helps margins and profits. The company was leveraged at both the gross and operating levels to generate high double-digit increases in both GAAP and adjusted earnings. In essence, the adjusted $3.64 was up from $2.43 last year and beat the Marketbeat.com consensus of $0.11 or 310 basis points.

The company guided flat to slightly negative revenue growth in fiscal 2022 but that is to be expected after the past two years of record results. The COVID pullback is long gone and there are headwinds facing the economy so flat is good, especially given the strength of the balance sheet and the outlook for dividend growth. Regardless, the company guides earnings in a $11.70 to $13.10 range which is also a YOY decline but well above Marketbeat.com’s consensus of $11.26 so very positive in our eyes.

Technical Prospects: Dick Sporting Goods Rise From Support

Shares of Dick’s Sporting Goods shed more than 30% but have been hitting the bottom for some time as well. The stock is now moving up from below it, at the $100 level, and may continue to move higher in the near term. However, if the market can put enough pressure on the short positions, the rally could gain the momentum it needs to rise and above the short-term moving average and approach the $120 level. Over the longer term, we see the stock moving back to retest the COVID-induced highs due to the strength of earnings, dividends and shareholder value.